Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q4 2018 Earnings Presentation
31 slides from Pinnacle West Capital's earnings presentation, Feb 22, 2019
Slide 1: Fourth Quarter and Full-Year 2018 Results
FOURTH QUARTER AND FULL-YEAR 2018 RESULTS February 22, 2019 Fourth Quarter and Full-Year 2018
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES This presentation contains forward-looking statements based on current expectations, including statements regarding our earnings guidance and financial outlook and goals. These forward-looking statements are often identified by words such as
Slide 3: Consolidated EPS Comparison 2018 vs. 2017
CONSOLIDATED EPS COMPARISON 2018 VS. 2017 4th Quarter Full-Year GAAP Net Income GAAP Net Income $4.54 $4.35 $0.23 $0.19 2017 2018 2017 2018 3 Fourth Quarter and Full-Year 2018
Slide 4: EPS Variances 4th Quarter 2018 vs. 4th Quarter 2017
EPS VARIANCES 4TH QUARTER 2018 VS. 4TH QUARTER 2017 Gross Margin Adjusted Sales / Usage $ 0.04 Income Taxes Adjusted LFCR $ 0.02 $0.10 $0.23 Gross Transmission $ 0.00 Margin1 Rate Design/ $0.19 $(0.15) Seasonal Rates $ 0.17 Pension & Adjusted Federal Tax $ (0.22) OPEB Other, Reform Non- net2 Weather
Slide 5: EPS Variances Full Year 2018 vs. 2017
EPS VARIANCES FULL YEAR 2018 VS. 2017 Adjusted Adjusted Pension & Gross Adjusted Income OPEB Margin1 O&M1 Taxes3 Non- $4.54 $0.15 $(0.50) Adjusted $0.88 $4.35 service D&A Other Interest, Credits, $(0.33) Taxes net of net $(0.19) AFUDC2 $0.17 $0.01 Gross Margin Rate Increase $ 0.69 Transmission $ 0.1
Slide 6: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to INDICATORS live and do business Year over Year Employment Growth Arizona is the 4th fastest-growing U.S. Phoenix state in the U.S. according to 5.0% new Census data.1 4.0% 2018 – APS partnered with Greater Phoenix 3.0% Economic Council a
Slide 7: EPS Guidance
EPS GUIDANCE AS OF FEBRUARY 22, 2019 Key Drivers 2018 - 2019 $4.75 – $4.95 + Four Corners Selective Catalytic Reduction (SCR) step-increase + Modest sales growth $4.54 + Higher transmission revenue + Lower O&M, primarily due to lower planned outage expense and cost management + Lower/flat interest e
Slide 8: APS Capital Expenditures
APS CAPITAL Capital expenditures will support our growing customer base and a EXPENDITURES cleaner energy mix ($ in millions) $1,484 $108 Other $1,202 $1,226 $1,203 Distribution $94 $126 $147 $559 Transmission $481 $508 $462 Clean $199 Generation $116 $169 Environmental1 $202 $147 $439 $65 $269 New
Slide 9: Rate Base
APS’s revenues come from a RATE BASE regulated retail rate base and meaningful transmission business APS Rate Base Growth Total Approved Rate Base Year-End ACC FERC Generation & Distribution Transmission Long-term Rate Base Guidance: 6-7% Average Annual Growth 17% $2.0 83% $1.5 ACC FERC $9.6 Rate Ef
Slide 10: Appendix
APPENDIX Fourth Quarter and Full-Year 2018
Slide 11: 2019 EPS Guidance
Key Factors & Assumptions as of 2019 EPS GUIDANCE February 22, 2019 2019 Adjusted gross margin1 (operating revenues, net of fuel and $2.50 – $2.56 billion purchased power expenses) • Retail customer growth about 1.5–2.5% • Weather-normalized retail electricity sales volume about 1-2% higher compared
Slide 12: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK February 22, 2019 Gross Margin – Customer and Sales Growth (2019-2021) Assumption Impact Retail customer growth • Expected to average about 1.5-2.5% annually • Strength in Arizona and U.S. economic conditions Weather-normalized retail electricity sal
Slide 13: Tax Reform
Tax Cuts and Jobs Act provides TAX REFORM benefits to both our customers and shareholders Customer Impacts EPS Impacts TEAM PHASE I: The ACC approved $119 million annual • The impact of the lower federal income tax rate is rate reduction reflecting the lower federal tax rate. based on our quarterly
Slide 14: Clean Energy Investments
CLEAN ENERGY Plans to invest in 950 MW of INVESTMENTS new clean technology by 2025 2018 Battery Storage RFP • 141 MW located on six APS solar plant sites • Utility owned • Anticipated in-service by mid-2020 2018 Peaking Capacity RFP • 150 MW of battery storage • 20 year PPA contracts beginning June
Slide 15: Distribution Grid Investments
DISTRIBUTION GRID Grid Operations and Investment Projected to be more than $1.5 INVESTMENTS billion from 2019-2021 Customer Growth Grid Modernization Run and Maintain Approximately 50% of distribution capex Approximately 9% of distribution capex Approximately 41% of distribution capex Line Extension
Slide 16: 2019 Planned Outage Schedule
2019 PLANNED OUTAGE Coal, Nuclear and Large Gas SCHEDULE Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Duration in Plant Unit Duration in Days Days in Days Four 4 21 Palo Verde 1 30 Palo Verde 3 44 Corners Four West 5 21 Cholla* 1 16 4 62 Corners Phoenix Choll
Slide 17: Operations & Maintenance
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages ($ in millions) $933 $858 74 $865 - $885 $848 63 50 - 60 72 859 795 815 - 825 776 2016 2017 2018 2019E 1 PNW Consolidated ex RES/DSM Planned Fleet Outages 1 Excludes RES/DSM of $83 million in 2016, $91 million in
Slide 18: Balance Sheet Strength
BALANCE SHEET STRENGTH Credit Ratings1 Long-Term Debt Maturity Schedule • APS Senior Unsecured: A- or equivalent ratings ($ in millions) or better at S&P, Moody’s and Fitch $700 • PNW Senior Unsecured: BBB+ or equivalent ratings or better at S&P, Moody’s and Fitch $600 2018 Major Financing Activitie
Slide 19: Ocotillo Modernization Project and Four Corners SCRs
OCOTILLO MODERNIZATION PROJECT AND FOUR CORNERS SCRs • Included in the 2017 Rate Review Order1, APS has been granted Accounting Deferral Orders for two large generation-related capital investments – Ocotillo Modernization Project: Retiring two aging, steam-based, natural gas units, and replacing wit
Slide 20: Four Corners SCR Step Increase
FOUR CORNERS SCR The Administrative Law Judge issued a Recommended Opinion STEP INCREASE and Order on November 27, 20181 Key Components of APS’s Filed Request Financial Cost of Capital Bill Impact • Consistent with prior • 7.85% Return on Rate • Rate rider applied as a disclosed estimates Base2 perc
Slide 21: Pension & Other Post Retirement Benefits (OPEB)
PENSION & OTHER POST RETIREMENT BENEFITS (“OPEB”) Pension Funded Status1 ($ in millions) 95% Expense2 2018A 2019E 90% 88% Pension1 $0 $23 OPEB $(21) $(19) Contributions 2018A 2019E 2020E 2021E YE 2016 YE 2017 YE 2018 Pension $50 Up to $350 • Funded status of the pension plan finished OPEB $0 $0 $0 $
Slide 22: Residential PV Applications
Residential DG (MWdc) Annual Additions 151 RESIDENTIAL PV 133 133 74 APPLICATIONS1 57 11.7 2014 2015 2016 2017 2018 2019 YTD 4,000 3718 3432 3,500 3,000 2464 2,500 2143 2110 1944 2,000 1818 1561 2033 1602 1426 1413 1442 1434 1,500 1267 1364 1283 1291 1153 1232 1001 1288 860 848 1,000 1127 770 1156 8
Slide 23: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL $ in millions pretax $25 $20 $15 $10 $21 $5 $10 $9 $0 $(4) $(5) $(13) $(10) $(21) $(25) $(15) $(20) $(25) $(30) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018 $(8) Million $(15) Million All periods recalculated to current 10-year rolling average (2006 – 2015)
Slide 24: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES1 $ in millions pretax Renewable Energy Demand Side Management $40 $30 $10 $10 $12 $20 $16 $14 $9 $12 $21 $10 $15 $19 $17 $12 $12 $9 $5 $0 $2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018 $91 Million $104 Million 1 Renewable energy and demand side management e
Slide 25: 2019 Key Dates
2019 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA) Implemented: Feb 1 E-01345A-16-0036 Lost Fixed Cost Recovery 2018 LFCR approved 2019 E-01345A-16-0036 LFCR Filed: Feb 15 Transmission Cost Adjustor To be Filed: May 15 E-01345A-16-0036 Implementation: Jun 1 2020 DSM/EE I
Slide 26: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Three Months Ended December 31, Tax Benefit Four of Lower RES/ Corners Pre-Tax 2018 RES/ 2017 EPS $ in millions pretax, except per share amounts 20181 DSM Deferral2 Income Other Adjusted 20171,3 DSM Adjusted Impact Operating revenues $ 756 $ (13) $ - $ - $ - $ 743 $ 7
Slide 27: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Twelve Months Ended December 31, Tax Benefit Four of Lower RES/ Corners Pre-Tax 2018 RES/ 2017 EPS $ in millions pretax, except per share amounts 20181 DSM Deferral2 Income Adjusted 20171,3 DSM Adjusted Impact Operating revenues $ 3,691 $ (108) $ - $ - $ 3,583 $ 3,565
Slide 28: Non-GAAP Measure Reconciliation 2019 Guidance
NON-GAAP MEASURE RECONCILIATION 2019 GUIDANCE 2019 Guidance $ in millions pretax Operating revenues1 $ 3,625 - $ 3,695 Fuel and purchased power expenses1 (1,045) - (1,055) Gross margin 2,580 - 2,640 Adjustments: Renewable energy and demand side management programs (80) - (80) Adjusted gross margin $
Slide 29: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended December 31, 12 Months Ended December 31, 2018 2017 Incr (Decr) 2018 2017 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 355 $ 353 2 $ 1,867 $ 1,792 $ 75 Business 353 370 (17) 1,629 1,615 14 Total Retail 708 723 (15) 3,496 3,
Slide 30: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended December 31, 12 Months Ended December 31, 2018 2017 Incr (Decr) 2018 2017 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 1,974 2,264 (290) 9,052 9,410 (358) Coal 2,373 1,506 867 7,817 7,140 677 Gas, Oil and Other 1,812 2,235 (423) 7,856 7,917 (6
Slide 31: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended December 31, 12 Months Ended December 31, 2018 2017 Incr (Decr) 2018 2017 Incr (Decr) WEATHER INDICATORS - RESIDENTIAL Actual Cooling Degree-Days 3 52 (49) 1,820 1,776 44 Heating Degree-Days 366 203 163 689 642 47 Average Humidity 45% 30% 15% 31% 25% 6% 10-Year
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